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PART I .. MULTIPLE CHOICE PROBLEMS ' Read each of the following questions carefully and choose the one best answer. Each problem is
worth 5 points. Note that diagrams are often helpﬁtl in determining the correct answer. 1. Barry takes 20 minutes to burn a CD and 4 minutes to make a sandwich. Clint takes 15
minutes to burn a CD and 5 minutes to make a sandwich. Barry has a comparative advantage
in and Clint has an absolute advantage in . a) CD3; sandwiches
Q sandwiches; CDs
0 CBS; CBS d) sandwiches; sandwiches 2. If a price floor is imposed above the current market equilibrium price, then
) there will be a shortage at there wili be a surplus "c = there wili be a new equilibrium at a higher price and iower quantity (i) there will be no effect 3. The Tampa Bay DevilRays baseball team has the lowest payroil in the league, and has
relatively low attendance at Tropicana Field. If the DevilRays want to increase revenue, they
a) should increase prices, no matter what the elasticity of demand for baseball is
b) should decrease prices, no matter what the elasticity of demand for baseball is should increase prices only if demand for baseball is relatively elastic a should decrease prices only if demand for baseball is relatively elastic 4. A rightward shift in the supply of US. cars is most likely to be due to
a) an increase in the price of steel used to make the cars
a reduction in foreign competition
c he introduction of costmsaving robots on the production line
d) increased popularity of foreign cars 5. If the unemployment rate increases from 5% to'7%, the
a economy will move closer to the production possibility frontier
economy will mover farther away from the production possibility frontier
c) economy will move up along its production possibility frontier
d) economy’s production possibility frontier will shift in 6. Eat’za Pizza restaurant had to increase the price of its pizzas due to increased costs of tomato
sauce and discovered that the number of pizzas soid siightiy increased. You explain to the
owner that the following is most likely tine
a) demand for pizza is inelastic
b) demand for pizza is eiastic I demand for pizza shifted out after a study found that tomato sauce prevents prostate cancer
pizza violates the laws of supply and demand b) substitutes in production.
c) substitutes in consumption.
d) complements in production. 8. Suppose that hot dogs and hamburgers are substitutes (in consumption), hot dogs and beans
.. e compiements and hot dogs are an inferior good. Then demand for hot dogs will shift in
a when the price of hamburgers decreases ' b) when the price of beans decreases c) when income decreases
d) ail of the above 9. If milk and cookies are complements in consumption and milk and cream are complements in
production, then the equilibrium quantity of miik will definitely decrease if
a) the price of cookies fails and the price of cream falls
b) the price of cookies rises and the price of cream rises c‘ the price of cookies falls and the price of cream rises
Q? the price of cookies rises and the price of cream falls 10. Because of decreasing marginal benefit, the consumer surplus from the first unit of a good is
the consumer surplus from the second unit.
less than
& greater than
c) equal to
d) not abie to be compared to 11. As Mary’s income increases by 20 percent, her demand for tickets to National Hockey
League games increases by 30 percent. Mary’s demand for tickets is income m; for Mary, hockey tickets are _ good. ’ elastic; a normai b) inelastic; a normal 0) elastic; an inferior d) inelastic; an inferior i2. A ieftward movement along the supply curve for Coke is likely to have been caused by any of 1 foilowing except
a decrease in the price of the secret Coke ingredients.
b) a decrease in the price of Pepsi.
c) a decrease in average household income.
(1) an increase in the price of salty snack foods that are complements of sodas. 13. if the income elasticity of demand for salmon is 1.2, then if you get a 10% raise,
thequantity demanded of salmon wiil increase by 2%
a} the quantity demanded of salmon will increase by 12%
c) the quantity demanded of salmon will decrease by 2%
d) the quantity demanded of salmon will decrease by 12% 14. Suppose that a sales tax is imposed on a good, but the price consumers pay does not change.
. a situation will occur if the __ the good is _______.
- demand for; perfectly eiastic
b) demand for; unit elastic
0) supply of; perfectly elastic
d) demand for; perfectly inelastic 15. Wool sweaters and wool pants are substitutes in production. if there is an increase in the
price of wool sweaters, we would predict that in the market for wool pants
a) equilibrium price will fall but quantity will increase
b) both equilibrium price and quantity will fail _ both equilibrium price and quantity will increase
wquilibrium price will increase and quantity wili decrease 16. Along a completely vertical demand curve, in absolute value the price elasticity of demand
a) is infinite is equal to 1
@is equal to 0
) is between 0 and 1
17. The government decides to implement a new tax on insulin. The tax burden wili likely faii
on:
a) producers because the supply of insulin is inelastic
consumers because the demand for insulin is elastic
@onsumers because the demand for insulin is inelastic
neither producers or consumers because health insurance companies pay for medicine 18. if there is no change in your demand for sneakers, and the supply of sneakers shifts out due to
cheaper imports from Indonesia, then in equilibrium your consumer surplus 9 decreases ncreases c) remains constant .
d) may increase or decrease depending on the amount of the price change 19. A rightward movement along the supply curve for ice cream might be caused by
a) a decrease in the price of the milk used to make ice cream ' _b an increase in the price of the milk used to make ice cream . [email protected] an increase in temperature, causing people to desire more ice cream a) a decrease in temperature, causing people to desire less ice cream 20. A downward—sloping production possibility frontier that is a straight line implies
a) increasing opportunity cost b) declining opportunity cost
90 c) constant opportunity cost
d) zero opportunity cost PART II - SHORT ANSWER QUESTION 1. (25 points) Use the foliowin g monthly supply and demand equations for rental apartments in
Davis. Qsm 1000
Qd= 2000 ~ 2P 3.) (4 points) What is the equilibrium price and quantity of housing?
(2* m [000 pas: SOD b) (9 points) Graph this market equilibrium in the s pace below. Be sure to label the axis supply
curve, demand curve, equilibrium price and quanti ty, and correctly number the intercept points. @ ;Q« a Vewlewﬂ loéb‘g “We W d) (6 points) If the city council imposes a price ceiling of $400, how many apartments are
rented? Is there a shortage of housing? If so, how much? 0 Is there a shortage? %9 @ Q of shortage 19 O c) (6 points) Calculate the Consumer Surptus before and after the price ceiling. Are consumers
better or worse off? ' .08 before 3 £1me 0 ﬂ?
@ CS after 3 $33000 .Consumers are better or worse off? W ...
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